Virtual Goods - Why the Virtual Market is Here to Stay

by Jordan Hicks, Apr 23 2011

In the last few years, many free to play MMORPGs have added a seemingly odd feature - the ability to spend real money on virtual goods. Rather than charge their players for the purchase of the software, or charge a monthly subscription to access the game, game studios have monetized their games by offering in-game content or equipment for players to purchase. This concept has gained popularity within game studios over the last few years, with some going so far as to make their games and subscriptions completely free, relying solely on the revenues from the sale of virtual goods.

One of the most notable examples of this approach is the game "War Of Legends" which was released by Jagex Studios earlier this year. Unlike many of Jagex's previous ventures, War Of Legends offers its players no premium membership option, but relies on the sale of virtual goods to provide the revenues. This is very different to the approach taken by Jagex in their more popular game, "Runescape." Runescape is a free MMORPG at its basic membership level, but offers a premium membership upgrade that unlocks a significant amount of the game world, equipment, and skills. Premium membership is paid for with a monthly subscription.

Another way that game publishers are using the virtual markets in their games is by offering players a virtual currency. Rather than spending real money directly on virtual goods within the game on a per-transaction basis, game studios offer to convert a player's real-world money into virtual gold that can be used inside the game. This is often done by creating a "premium" currency that is worth significantly more than the normal in-game currency. One of the most notable examples of this approach is Zynga Studios reward points. This virtual gold can be purchased online, or even as physical gift cards, and can then be spent on virtual goods in many of Zynga's browser games, such as Mafia Wars or Farmville.

The sale of virtual goods has even extended outside of the games themselves. When logged into Xbox Live, players have the option to purchase additional clothing and accessories for their profile avatar, which does nothing to affect the game play on Xbox Live at all.

Initially, the idea of paying real money on virtual goods inside a free game sounds ridiculous, and many players have starkly refused to spend money to play free games. However, based on the success that developers have seen from in-game purchases, it seems likely that this trend will continue. Here are three reasons why virtual goods are here to stay:

1. More Bang For Your Buck

The whole idea behind the virtual market is that virtual goods enhance game play and make the game better. By design, it is typically much cheaper to buy in-game goods with virtual gold than with the regular in-game currency (or, in some cases, premium equipment may not even be available for purchase with the regular currency). The actual prices themselves are rarely a good indication of value, as one unit of the premium currency can sometimes be worth hundreds or even thousands of the basic currency. However, players who are accustomed to a game's economy can begin to make judgments about what an item's value is in terms of time and effort. When a player knows that it would take several hours to earn enough basic in-game currency to purchase virtual goods that he or she could have now for only a few dollars, the idea of spending real money does not seem far-fetched.

The question that the players have to ask themselves is, "what is this game worth to me?" In a browser game that will entertain the player for only an hour or so, spending money on a virtual item seems ridiculous. But in some of the large free MMORPG games such as Dungeons & Dragons Online and Lord of the Rings Online, the time investment that the players have made make a monetary investment seem completely reasonable. Especially consider that, for a similar game, they might spend anywhere from five to fifteen dollars a month just to play.

2. Inclusive Player Communities

In the broadest sense, there are two kinds of online gamers: those who will spend money, and those who won't. When a game is free to play, but offers virtual goods for sale, it brings those two demographics together into the same game. Some players relish the separation between the "serious" and casual players, and prefer the environment that a subscription-only game like World of Warcraft provides. However, when game studios can bring both of these groups together in a free MMORPG, it opens up a whole new opportunity for players to interact with and influence each other. When a game relies on the sale of virtual goods to pay the bills, the caste system of basic and premium membership no longer takes away from the overall game experience.

3. The Continuing Player/Game Relationship Through Virtual Goods

By offering new purchasable goods throughout the life of a game, developers can continue to introduce new features to the game, and see the profits immediately. These updates keep the game fresh for the players while remaining practical for the developers. If the players paid the entire cost of the game up front, the game studios would have little incentive to continue to update the games with new features and content. Also, this method allows game studios to develop a relationship with the players before they try to sell them anything. This results in virtual goods designed with the players in mind, and has allowed for some interesting innovations in the virtual market.

One of the most interesting innovations involving virtual goods has been fundraising for non-profit organizations. One of the first games to incorporate fundraising into the virtual market was World of Warcraft. Players gained the ability to buy special pets to follow them on their adventures. The pets cost $10 each, with half of the proceeds going to the Make-A-Wish foundation. A more recent example is the virtual in-game products offered by Sony Online Entertainment, with proceeds going to the Red Cross to support the relief efforts taking place in Japan. The most notable of these goods was a cherry blossom that Everquest players could feature in their in-game homes. More information about this campaign can be found here.

Regardless of what game you are playing, whether or not you spend money on virtual goods comes down to the question of how much the game experience is worth to you. Within the world of online gaming, the players have the power to influence the developers by letting their money do the talking; giving clear feedback to the game studios by showing what they are and are not willing to pay for. In the coming years, this should result in better games, better game play, and better virtual goods.